May 3, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 3, 2015....Bob Brinker hosted Moneytalk live today. (comments welcome)

"From the Sandwich Islands to Sandwich Mass, Moneytalk is unique."__ Bob Brinker

MAY MARKETIMER NOW AVAILABLE....Brinker announced this today.

STOCK MARKET

Today, Brinker commented that the S&P is very near its all-time-high -- and said that he recommends dollar cost averaging into equities for new money. He remains fully invested.

SELL BERKSHIRE HATHAWAY TO GET DIVERSITY AND DIVIDEND.... Caller Tom from Naperville said his aunt gave him 3 shares, worth about $216,000 per share, and wanted to know if he  should hold it or sell it.

Brinker replied:  If I'm starting out from a no tax liability standpoint, and if you haven't heard in stock, you should have a date of death value on it.  So if you inherited the stock yesterday the value of the stock would be the same as the date of death.  So then you would not have a tax liability because you would have the date of death cost basis.  If I were in that position, I would rather own something like the Total Stock Market Index or the S&P 500 for obvious reasons which would be diversification reasons.  And the other reason would be they pay a cash dividend.  You get a cash dividend of close to 2% on those holdings whereas you're not getting any cash dividend on the shares you own.  So I'd rather own a diversified, dividend paying security rather than just own shares of any one company including Berkshire.  (Tom would have a tax liability because he inherited the stock over 12 years ago.)  

CONSUMER SENTIMENT HIGH.... Brinker said: We've talked about consumer sentiment and how consumer sentiment has been firm.  University of Michigan Wolverine consumer sentiment index came out this week and it was unchanged – staying at 95.9.…  It's the highest level in three months.  Consumer sentiment has been helped by lower gasoline prices and fuel prices that place more spendable income in the pockets of consumers.  And yes, consumers benefit from that.

Honey EC: Expanding on Brinker's Moneytalk comments above:  In the May issue of Marketimer, which is now available, Brinker reviewed his stock market timing indicators. One of them is "Sentiment." 

Page 2;  Paragraph 6; Brinker wrote:  "Advisory service sentiment measures continue to indicate a high level of bullish investor sentiment.  This suggests that many investors are fully invested and that means potential demand may be reduced by relatively low stock market cash reserves.  In our view, the risk of a short-term correction is elevated due to the high level of advisory complacency.  In the absence of a major exogenous event, we would expect any short-term weakness in the near term to be limited to the single-digit percentage range.  The combination of low interest rates and the plethora of share buyback programs is likely to cushion any weakness that may develop near-term."

 FIRST FOMC 0.25% RATE INCREASE MAY NOT IMPACT BOND MARKET.....Brinker said:  When they (Federal Reserve) talk about a quarter percent, what they are talking about is that the expectation is, the first time that the Federal Reserve raises short-term interest rates – and that will be data dependent as chair Janet has said repeatedly (she said it again this week in her statement), that they expect that the most likely amount of the rate increase would be one quarter of 1%.  That doesn't mean that there would only ever be one one quarter of 1% rate increase.  It would mean that the expectation is that the first time the Fed raises rates – whenever that turns out to be – that it would be one quarter of 1%.  That may or may not turn out to be a factor in the bond market because it's such a tiny increase and it's coming off basically a zero level.  It may not have a whole lot of impact.

TWO CALLS, TWO OPPORTUNITIES TO BE HONEST ABOUT GINNIE MAE

VANGUARD BOND ETF (BND)...Caller Dave from Albuquerque said he owned BND wanted to know Brinker's opinion about the duration and told Brinker that he only cared about collecting the interest and didn't care about a net-asset decline if interest rates rise.

Brinker replied:  If you don't care about the underlying value of the portfolio – in other words it swings in either direction don't concern you one way or the other, if your only concern is getting the regular interest payments, then it doesn't make any difference to you what they price of the ETF is because you only care about the interest.  So is that the category you are in? (John: "Yes")  Well there you go.  You see I've said this before – for those who don't care at all that don't care at all about the underlying net asset value of the securities, they're only interested in the interest, then that is where the focus is.…  For my taste, 5 1/2 years is too long a duration.  It's not my recommendation.  It's certainly not my approach to fixed income at this time.  But if somebody doesn't care about the underlying value, it doesn't make any difference at that point.

Honey EC: Brinker laid the groundwork for the next call on Ginnie Maes -- putting the focus on John not caring about net-asset-value on a 5.6% ETF,  thus establishing a red herring so that he could talk about Ginnie Maes  as a comparison and avoid mentioning what a disaster it was for him to sell all Marketimer GNMA holdings in July of 2013 - Next call:

VANGUARD GINNIE MAE FUND (VFIIX)....Caller John from New York said that about 65% of his portfolio in VFIIX -- should he sell?

Brinker replied: They have a duration right now an average of 3.3 years.  So that's not a big number.  That's way different than our prior caller who doesn't care what happens to the net asset value in the terms of volatility.  He said that point blank when I asked him.  But his duration was 5.6.  Your duration is 3.3, which means you have much less volatility than a 5.6.  For every one point increase in corresponding rates, you have about 3.3 net asset value risk.  So in a situation like yours, where you are comfortable with the holding, we get back to the same question, how much do you care whether the net asset value of the security goes down?......

.....I would say this, you are comfortable with the holding, you don't seem to care a whole lot about net asset value fluctuation, you could have a capital gain if you're a long-term holder… Your duration is not much different than the duration I am recommending.  The duration I'm recommending is close to two and you are at 3.3.  So there isn't that much difference there.....The amount of risk that John is taking holding a 3.3 is basically if rates went 3%, he's taking a 10% price risk, but 3% would be a lot right now.....

.....The Federal Reserve is having a hard time raising rates at all.…  In order to get 3%, you'd have to have an acceleration in the economy – and we don't see that right now.…  You've been looking at zero interest rate since December 2008, and you've never had an acceleration of the economy.  Just about every single year you've had growth about two and a fraction… And the absence of that acceleration has been the reason that rates have been able to stay where they are.…  So I don't think  in John's particular case, it's a really big deal, especially given the fact that his duration is low to begin with.  Not as low as I would like but nonetheless it's low.

Honey EC: Spin, spin, spin.... Brinker used to reassure callers that the NAV of VFIIX would fluctuate between $9.50 and $10.50. That was before the NAV grew to over $11.00. Then he started telling people that if they couldn't tolerate price declines, they could use FDIC-insured CDs.   

Brinker held VFIIX until it dropped to $10.37 and sold all Marketimer holdings in July, 2013. He put that cash into Fidelity Floating Rate Fund.

VFIIX is now selling for $10.79 and still pays almost 3% dividend. And Brinker has now sold all FFRHX and returned to DoubleLine Total Return Fund (DLTNX) which he had sold for a much shorter duration fund.

GROSS DOMESTIC PRODUCT DOWN TO 0.2 in Q1 - HERE'S WHY....Brinker comments: The news has been coming fast and furious in terms of investments.  Not the smallest story of the week was something we predicted on last week's program, if you were with us.  And that was a lousy Gross Domestic Product report which came out at the end of the week.  Real GDP was up just 2/10 of 1% in the first quarter.  Certainly better than the first quarter of 2014 which was in negative territory – hold number territory.…

HERE'S WHY GDP REPORT WAS LOUSY.... Brinker continued: Couple of factors that jump off the page and one of them is weather.  We had one of the coldest February's of all time.…  I've said it before – the whole global warming thing, we are all going to freeze to death – just be patient.  Another factor in the first quarter which happily is no longer with us was the West Coast port strike.  We had an extended and extensive strike affecting the Long Beach California port....These factors are behind us and will not return soon.

ONGOING GDP KILLER - STRONG DOLLAR.....Brinker continued: A couple of other factors that are still out there and must be respected for what they are.  One of them is the strong dollar.  The greenback has just been on a tear and as long as there is this kind of strength in the dollar, US exports, when they go overseas on the shelves are more expensive.  Therefore, competitive products overseas have a better shot at getting the sale.  And there is also another issue which is the products imported into the US,  they are cheaper when the dollar is this strong. This gives those who import products the opportunity to be more competitive.

DECLINE IN OIL PRICES ALSO GDP KILLER.... Brinker continued: Now the other thing that has been going on is one that we have talked about many times, which is that the decline in oil prices has led to a decline in capital investment in the energy area – which has always been a very strong area in capital investment.  Yes we have seen a pretty good rebound in the price of oil back into the mid-to-upper 50s, up from the low 40s… But the reality is that the number of rigs that have come out of service in the past several months has been amazing.  The rate count is way down and that affects capital investment as well.

EXPECT BETTER ECONOMIC GROWTH IN Q-2.... Brinker continued: We should certainly expect to see some improvement in the second quarter real GDP numbers.  Remember what happened last year?  We had that really rough first quarter and then the economy rebounded quite well.  In the last year, real GDP has risen 3%.…  Which by the way is fairly close to the long-term growth track.  So on a 12 month basis, we've had a decent economy.

BRINKER'S FUN QUOTE OF THE DAY: "In my opinion, being on a golf course is as close to heaven as you are going to get on this planet."

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION OF THE DAY:

Bob Brinker used which one of the following scandals to describe the current business news?
A) IRS abuse.
B) Fast and furious.
C) Benghazi.
D) Solyndra.

ANSWER  

Brinker's guest-speaker was Michael Casey: The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order

Note: Frankj thought this guest was boring (several others agree with him), so he didn't summarize the third hour. However, Brinker had another guest on talking about Bitcoins in July of last year. Frankj did a summary. You can read it HERE.

Frankj sent a picture of his three visitors. Notice the beautiful Chinese Wisteria tree in the background. I'm sure his special cat, Hobbes, was somewhere nearby when this was taken. 

Summary posted at 7:06pm PDT
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